Correlation Between Coloray International and LG Chem
Can any of the company-specific risk be diversified away by investing in both Coloray International and LG Chem at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Coloray International and LG Chem into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Coloray International Investment and LG Chem, you can compare the effects of market volatilities on Coloray International and LG Chem and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Coloray International with a short position of LG Chem. Check out your portfolio center. Please also check ongoing floating volatility patterns of Coloray International and LG Chem.
Diversification Opportunities for Coloray International and LG Chem
-0.38 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Coloray and 051915 is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Coloray International Investme and LG Chem in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG Chem and Coloray International is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Coloray International Investment are associated (or correlated) with LG Chem. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG Chem has no effect on the direction of Coloray International i.e., Coloray International and LG Chem go up and down completely randomly.
Pair Corralation between Coloray International and LG Chem
Assuming the 90 days trading horizon Coloray International Investment is expected to generate 1.12 times more return on investment than LG Chem. However, Coloray International is 1.12 times more volatile than LG Chem. It trades about 0.56 of its potential returns per unit of risk. LG Chem is currently generating about -0.53 per unit of risk. If you would invest 61,400 in Coloray International Investment on November 6, 2024 and sell it today you would earn a total of 15,300 from holding Coloray International Investment or generate 24.92% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Coloray International Investme vs. LG Chem
Performance |
| Timeline |
| Coloray International |
| LG Chem |
Coloray International and LG Chem Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Coloray International and LG Chem
The main advantage of trading using opposite Coloray International and LG Chem positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Coloray International position performs unexpectedly, LG Chem can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in LG Chem will offset losses from the drop in LG Chem's long position.The idea behind Coloray International Investment and LG Chem pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.
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